page_title: Great Moderation
hierarchical_section_title: Great Moderation
caption_attribution_description: English: US Annualized Real GDP Growth between 1950 and 2016, showing the start of the Great Moderation. US Real GDP data series obtained from the Federal Reserve Economic Data (FRED) database provided by Economic Research at the St. Louis Fed.[1]
context_page_description: The Great Moderation is a period starting from the mid-1980s until 2007 characterized by the reduction in the volatility of business cycle fluctuations in developed nations starting compared with the decades before. It is believed to be caused by institutional and structural changes, particularly in central bank policies, in the second half of the twentieth century.
  Sometime during the mid-1980s major economic variables such as real gross domestic product growth, industrial production, monthly payroll employment and the unemployment rate began to decline in volatility. During the Great Moderation, real wages and consumer prices stopped increasing and remained stable, while interest rates reversed their upward trend and started to fall. The period also saw a large increase in household debt and economic polarization, as the wealth of the rich grew substantially, while the poor and middle class went deep into debt.
context_section_description: The Great Moderation is a period starting from the mid-1980s until 2007 characterized by the reduction in the volatility of business cycle fluctuations in developed nations starting compared with the decades before. It is believed to be caused by institutional and structural changes, particularly in central bank policies, in the second half of the twentieth century.  
  Sometime during the mid-1980s major economic variables such as real gross domestic product growth, industrial production, monthly payroll employment and the unemployment rate began to decline in volatility. During the Great Moderation, real wages and consumer prices stopped increasing and remained stable, while interest rates reversed their upward trend and started to fall. The period also saw a large increase in household debt and economic polarization, as the wealth of the rich grew substantially, while the poor and middle class went deep into debt.
  Ben Bernanke and others in the US Federal Reserve (the Fed) claim that the Great Moderation is primarily due to greater independence of the central banks from political and financial influences which has allowed them to follow macroeconomic stabilisation, by measures such as following the Taylor rule. Additionally, economists believe that information technology and greater flexibility in working practices contributed to increasing macroeconomic stability.
  The term was coined in 2002 by James Stock and Mark Watson to describe the observed reduction in business cycle volatility. There is a debate pertaining to whether the Great Moderation ended with the late-2000s economic and financial crisis, or if it continued beyond this date with the crisis being an anomaly.
caption: US annualized real GDP growth from 1950 to 2016
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